Liberia: Risk Assessment
Country Rating1
Rating: D
Risk Assessment2
Economic activity limited by the lack of infrastructure
Liberia has been slowly rebuilding after fourteen years of civil war. Relatively unaffected by the crisis, GDP growth accelerated in 2010. The rebound in rubber production and the increase in farm production (60% of GDP) underpinned the economy.
In 2011, the expected influx of foreign direct investment will enable a considerable increase in production capacity in the mining sector. Arcelor-Mittal, China Union, and the Australian BHP Billiton are expected to continue to invest in iron mines. Indonesian and Singaporean investments will similarly spur palm oil production.
The economy has remained severely handicapped by the destruction of infrastructure during the war: 75% of schools and 95% of health facilities were destroyed. The electric power network, access to water, and transport infrastructure are very inadequate.
Restructuring of foreign debt
Public sector foreign debt was reduced by 90% between 2008 and 2010 thanks to substantial debt cancellation granted by Liberia's multilateral, bilateral, and trade creditors. In June 2010, the country reached the HIPC completion point and thus benefited from $1.5 billion in debt relief granted by the IMF, World Bank, and African Development Bank. On the heels of that debt relief, the Paris Club cancelled $1.3 billion in claims.
The resulting decline in debt service is expected to enable the authorities to redirect government spending towards infrastructure (electricity, water, communications) and also education, health, security, and the legal system, which are still deficient. And some hiring is expected to take place in education and the police. At the same time, however, fiscal revenues will likely stagnate as a result of the reduction in taxes on profits and income. The public sector deficit is thus expected to widen in 2011.
Abyssal trade deficit
As in 2009, the trade deficit was very large in 2010. The twofold rise in exports thanks to increases in rubber production and prices (two thirds of exports) has not sufficed to offset the rebound in imports (oil, food products, capital goods). And the trade deficit will likely persist in 2011 and be mostly covered by grants and foreign direct investment. FDI is expected to grow thanks to the numerous projects in mining (iron ore) and agriculture (palm oil). In this context the exchange rate will likely depreciate slightly in 2011 with the authorities lacking the reserves necessary to defend the currency.
Precarious domestic political stability
Leading the country since 2005, Ellen Johnson-Sirleaf has worked successfully to open the country internationally and secure support from financial backers. She has nonetheless been facing strong opposition in the run-up to elections in October 2011. And the outcome of the trial of its former head of state Charles Taylor under way before the Special Court for Sierra Leone could disrupt domestic stability in Liberia and the national reconciliation process under way. That is why 8,200 UN blue helmets are still stationed in the country and have been providing the authorities with logistical support.
Strengths
- Widespread support among international institutions for the post civil war reconstruction
- Diversity of natural resources: largely unexploited forests, diamonds, iron ore and rubber (9th world producer)
- Major debt restructuring
Weaknesses
- Institutions weakened by 14 years of civil war
- Lack of transport, education, and energy infrastructure
- Agriculture vulnerable to climatic change; strong dependence on imported rice
- Vulnerability to fluctuations in oil and food prices